The Ebbs and Flows of ESG and Climate Financing
Written by Ismail Weiliang and Matthias Ong, Corporate Engagement Head, CDP, Singapore
Views are entirely ours
and not connected to any company
Rise of ESG
It is surprising how interest in ESG has risen over the years. Despite many years of Non-Governmental Organisations (NGOs) such as WWF, Conservation International, Greenpeace, and numerous charities such as Amnesty International and Save the Children advocating for greater environmental and social responsibility, it is only recently that a switch has seemingly been flipped. Now, we see an awoken generation of politicians, investors and corporate leaders that has emerged over time. There is now an increasing global knowledge pool of how ESG should be implemented in all that we do starting with the investors through the Principles of Responsible Investment (PRI).
Challenges of ESG
The path is not straightforward with financing of ESG facing numerous challenges. For every investing project that has successfully forecasted the risk and delivered social and environmental outcomes, there are others that have failed with unexpected and unintended consequences. Some green projects have found to be greenwashed whether intentionally or unintentionally, to have had shades of brown, whether from an unidentified waste stream or an exploitation of a new resource. Some investors balk at the loss of upside opportunity a purely financial driven project would have in the short-term over an ESG-linked one. Responsibility is not easy to achieve.
Drivers of Climate Financing
Climate offers some hope. Although it only represents largely the “E” in ESG, it shows a clear path of responsible action that other responsible actions can follow. And it took a significantly long path to get here. Even when the first warnings of a major global crisis first was discussed in the mid-1900s, no one heeded the call. Even when there was some global consensus from the formation of the IPCC and UNFCCC around 1990, the world was still not ready. Since then, three elements have driven climate financing, and therefore ESG, into the uncharted territories, as follows:
Challenges in Climate Financing
Currently, much of the climate financing is still driven by stakeholder sentiment and regulation. We see a big push by regulation for climate financing with some countries having a longer implementation tail. Climate financing for adaptation also lags behind mitigation. Climate Policy Initiative, an analytics and advisory organisation, tracks that only 7% of the US$632bn of climate finance in 2019-20 went into adaptation.
However, in the medium term, schemes for carbon (pricing, tax, credit and trading and markets) and frameworks for financing adaptation are expected to come online - catalyzing the growth significantly. In the longer term, we should work towards having loss and damage included within carbon pricing calculations to have a fuller picture of the financial impact of our inaction.
Inflections for Climate Financing
These are the points of inflections expected along the way:
We cannot accurately forecast everything that is going to happen, but we should learn from the past, and build together a better future.
Matthias Ong is currently in CDP Singapore and has experience across the public, private and social sectors. Over the last 12 years, he has worked in the Ministry of the Environment and Water Resources (MEWR), PUB, Singapore’s National Water Agency, CH2M Hill (now Jacobs), Singapore Airlines (SIA) and MILK (Mainly I Love Kids) Fund covering various roles from policy maker, engineer, supply chain operations to social sector service leader. He oversees both physical and transition climate risk data and solutions, and has been involved in national and organisational wide sustainability efforts ranging from climate science capability building, GHG accounting, renewable energy deployment, policymaking and development of climate frameworks involving a wide range of stakeholders.
Ismail Weiliang is a climate resilience consultant with over half a decade of experience and specialises in flood risk advisory for Asia. His work involves advising governments and development banks on strategies to transform climate risks into resilience. He also founded a non-profit organisation “The Climatebender” that provides humanitarian relief to communities vulnerable to the climate crisis.